Albion Enterprise VCT PLC: Annual Report and Fi...
Annual Financial Report
As required by the UK Listing Authority's Disclosure and Transparency Rules 4.1 and 6.3, Albion Enterprise VCT PLC today makes public its information relating to the Annual Report and Financial Statements for the year ended 31 March 2012.
This announcement was approved for release by the Board of Directors on 3 July 2012.
This announcement has not been audited.
You will shortly be able to view the Annual Report and Financial Statements for the year to 31 March 2012 (which have been audited) at: www.albion-ventures.co.uk by clicking on 'Our Funds' and then 'Albion Enterprise VCT PLC'. The Annual Report and Financial Statements for the year to 31 March 2012 will be available as a PDF document via a link under the 'Investor Centre' in the 'Financial Reports and Circulars' section. The information contained in the Annual Report and Financial Statements will include information as required by the Disclosure and Transparency Rules, including Rule 4.1.
Investment objectives
The aim of Albion Enterprise VCT ("the Company") is to provide investors with a regular and predictable source of income, combined with the prospect of longer term capital growth. The Company intends to achieve this by investing up to 50 per cent. of the net funds raised in an asset-backed portfolio of lower risk, ungeared businesses, principally operating in the leisure sector and related areas (the "Asset-backed Portfolio"). The balance of the net funds raised, other than funds retained for liquidity purposes, will be invested in a portfolio of higher growth businesses across a variety of sectors of the UK economy. These will range from lower risk, income producing businesses to higher risk technology companies (the "Growth Portfolio"). Funds awaiting investment in Qualifying Investments or retained for liquidity purposes will be held in gilts, on deposit or invested in floating rate notes or similar instruments, in the latter two cases with banks with a Moody's credit rating of 'A' or above.
The Company's investment portfolio will thus be structured to provide a balance between income and capital growth for the longer term. The Asset-backed Portfolio is designed to provide stability and income whilst still maintaining the potential for capital growth. The Growth Portfolio is intended to provide highly diversified exposure through its portfolio of investments in unquoted UK companies.
Financial calendar
| Record date for first dividend | 3 August 2012 |
| Payment of first dividend | 31 August 2012 |
| Annual General Meeting | 4 September 2012 |
| Announcement of Half-yearly results for the six months ended 30 September 2012 | November 2012 |
| Payment of second dividend subject to Board approval | February 2013 |
Financial highlights
| 95.25p | Net asset value per share plus dividends paid from launch to 31 March 2012. |
| 3.00p | Tax free dividend per share paid in the year to 31 March 2012. |
| 84.90p | Net asset value per share as at 31 March 2012. |
| 1.75p | First tax-free dividend per share declared for the year to 31 March 2013. |
Financial summary
| 31 March 2012 (pence per share) | 31 March 2011 (pence per share) | |
| Dividends paid | 3.00 | 3.00 |
| Revenue return | 1.40 | 1.20 |
| Capital return | (0.60) | 0.70 |
| Net asset value | 84.90 | 87.10 |
Net asset value total return to shareholders since launch:
| 31 March 2012 (pence per share) | |
| Total dividends paid during the year ended: | |
| 31 March 2008 | 0.70 |
| 31 March 2009 | 1.65 |
| 31 March 2010 | 2.00 |
| 31 March 2011 | 3.00 |
| 31 March 2012 | 3.00 |
| Total dividends paid to 31 March 2012 | 10.35 |
| Net asset value as at 31 March 2012 | 84.90 |
| Total shareholder net asset return to 31 March 2012 | 95.25 |
In addition to the above dividends, the Company will pay a first dividend, for the new financial year, of 1.75 pence per share on 31 August 2012 to shareholders on the register as at 3 August 2012.
Notes
- The dividend of 0.7 pence per share paid during the period ended 31 March 2008 and the first dividend of 0.4 pence per share paid during the year ended 31 March 2009 were paid to shareholders who subscribed in the 2006/2007 offer only.
- All dividends paid by the Company are free of income tax. It is an H.M. Revenue & Customs requirement that dividend vouchers indicate the tax element should dividends have been subject to income tax. Investors should ignore this figure on the dividend voucher and need not disclose any income they receive from a VCT on their tax return.
- The net asset value of the Company is not its share price as quoted on the official list of the London Stock Exchange. The share price of the Company can be found in the Investment Companies - VCTs section of the Financial Times on a daily basis.
- Investors are reminded that it is common for shares in VCTs to trade at a discount to their net asset value as tax reliefs are only obtainable on initial subscription.
Chairman's statement
Introduction
The Company's result for the year to the 31 March 2012 saw a total return of 0.8 pence per share against a total return of 1.9 pence per shares for the previous year. Within this, the gross revenue generated by the investment portfolio increased by a further 9 per cent.
Portfolio progress
Although the net gains on investment are lower than for the previous year, almost all of the VCT's portfolio companies continued to grow. Particularly strong growth was seen at Radnor House School, where the number of pupils is now twice the budgeted level, and which has been given seven 'outstandings' in its first Ofsted report. In addition, Process System Enterprise, which provides simulation modelling for complex industrial processes, including for the offshore oil industry, saw further strong growth. Prospects also continued to look strong for Mirada Medical and Opta Sports Data.
The main write-downs were those companies which, whilst still growing during the period, saw expansion at lower levels than anticipated. These included DySIS and Mi-Pay, respectively in the cervical cancer screening and mobile payment sectors, both of which required additional finance to improve market penetration.
During the year £3.5 million was invested in two new and four existing companies. The new investments comprised £225,000 into Abcodia, a joint investment with the University College London, which owns a 'biomarker' library for use in life sciences research, and £770,000 in Hilson Moran, a mechanical and engineering consultancy.
Risks and uncertainties
The outlook for the UK and global economies continues to be the key risk affecting your Company. Investment risk is mitigated through a variety of processes, including our policy of ensuring that the Company has a first charge over portfolio companies' assets wherever possible and of ensuring that the portfolio is balanced through the inclusion of sectors that are less exposed to the business and consumer cycle.
A detailed analysis of the other risks and uncertainties facing the business is shown in note 23 to this announcement.
Details of post Balance sheet events are set out in note 21 to this announcement.
Change of registrar
As part of our commitment to improve communications with shareholders, our share registrar has changed to Computershare Investor Services PLC. Albion Ventures LLP is working with Computershare to build on its improvement by providing annual shareholder statements which have just been sent to shareholders.
Reduction of share capital and cancellation of capital reserves
The Board proposes to increase the Company's distributable reserves by way of a reduction of the Company's share capital and cancellation of its share premium account subject to shareholder approval and confirmation by the Court. Details of the resolutions proposing these changes at the Annual General Meeting of the Company are shown on page 20 within the Directors' report in the full Annual Report and Financial Statements.
Discount management and share buy-backs
It remains the Board's policy to buy back shares in the market, subject to the overall constraint that such purchases are in the VCT's interests, including the maintenance of sufficient resources for investment in new and existing portfolio companies and the continued payment of dividends to shareholders. It is the Board's intention for such buy-backs to be in the region of a 10 to 15 per cent. discount to net asset value, so far as market conditions and liquidity permit.
Related party transactions
Details of material related party transactions for the year can be found in note 22 to this announcement.
Albion VCTs Linked Top Up Offers
During the year the Company issued 1,445,189 shares under the Company's Offer as part of the Albion VCTs Linked Top Up Offers launched in November 2010 and in November 2011. Details are shown in note 15 to this announcement. Since the year end, a further 840,795 shares have been issued under the latter Offer, generating net proceeds of £698,000. The proceeds of the Offers will be used to provide further resources to the Albion VCTs at a time when a number of attractive new investment opportunities are being seen.
Results and dividends
As at 31 March 2012, the net asset value of the Ordinary shares was 84.9 pence per share, compared to 87.1 pence per share as at 31 March 2011. The revenue return after taxation was £437,000, compared to £373,000 for the previous year. The Company will pay a first dividend for the financial year to 31 March 2013 of 1.75 pence per share. The dividend will be paid on 31 August 2012 to shareholders on the register at 3 August 2012.
Outlook and prospects
While it is disappointing that capital growth in the portfolio was not higher, we are encouraged by continued increase in investment income. The portfolio contains a number of companies with strong market positions both in the UK and globally and we believe that these have excellent potential in the future. Our strategy remains to balance the portfolio between income-generating, asset rich businesses and higher growth companies, including those in technology sectors. This approach, balanced with an increasing sector focus on areas where the consumer and business cycles have less influence, gives us optimism for future shareholder returns.
Maxwell Packe
Chairman
3 July 2012
Manager's report
Portfolio review
The sector analysis of VCT's investment portfolio by value at the 31 March 2012 is set out below. This shows that healthcare now accounts for 26 per cent. of the portfolio compared to 25 per cent. at the end of the previous financial year. In addition, the environmental and renewable sector has increased from 18.1 per cent. to 18.5 per cent. of net assets. This is in line with the Board's target exposure to the sector, and is unlikely to increase for the time being.
Split of portfolio valuation by sector as at 31 March 2012
Please see the end of this announcement for the PDF of the sector split of the portfolio by valuation as at 31 March 2012.
New investments
During the year, £3.5 million was invested in six companies. We are continuing to look at new opportunities in the healthcare sector, particularly in medical technology. In addition, we are taking an opportunistic view of other sectors and have recently made a further investment to Bravo Inns II where the lack of alternative finance is giving rise to strong opportunities at attractive prices.
Investment performance
The successful sale of Dexela, which completed early on in the financial year, produced a return of between two and three times cost. We are anticipating further proceeds from this disposal during the current financial year. As mentioned in the Chairman's statement, the very great majority of our portfolio companies continued to grow. Within the asset-backed portfolio, Nelson House Hospital, which has been developing a new psychiatric unit in Gosport on the South coast, has now opened and has received its first patients. In addition, Bravo Inns II is showing strong profitability and an increase in trading in a generally difficult environment.
Further progress was seen in the renewable energy portfolio, with £5.2 million now invested. TEG (Biogas) Perth, whose anaerobic digestion unit, creating electricity from waste food, is now fully operational and producing sufficient electricity to power 1,300 houses. Meanwhile Alto Prodotto Wind, whose first wind turbine on a brownfield industrial site in South Wales has now been erected, is producing sufficient electricity to power 325 houses. Finally, our two solar power businesses, Street by Street Solar and Regenerco, now own solar panels on nearly 1,000 residential and 6 commercial buildings.
Albion Ventures LLP
Manager
3 July 2012
Responsibility statement
In preparing these Financial Statements for the year to 31 March 2012, the Directors of the Company, Maxwell Packe, Lady Balfour of Burleigh, Lord St John of Bletso and Patrick Reeve, confirm that to the best of their knowledge:
- summary financial information contained in this announcement and the full Annual Report and Financial Statements for the year ended 31 March 2012 for the Company have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (UK Accounting Standards and applicable law) and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Company for the year ended 31 March 2012 as required by DTR 4.1.12.R;
- the Chairman's statement and Manager's report include a fair review of the information required by DTR 4.2.7R (indication of important events during the year ended 31 March 2012 and description of principal risks and uncertainties that the Company faces); and
- the Chairman's statement and Manager's report include a fair review of the information required by DTR 4.2.8R (disclosure of related parties transactions and changes therein).
A detailed "Statement of Directors' responsibilities for the preparation of the Company's financial statements" is contained within the full audited Annual Report and Financial Statements.
By order of the Board
Maxwell Packe
Chairman
Income statement
| Year ended 31 March 2012 | Year ended 31 March 2011 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Note | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Gains on investments | 3 | - | 199 | 199 | - | 588 | 588 |
| Investment income | 4 | 934 | - | 934 | 852 | - | 852 |
| Investment management fees | 5 | (172) | (517) | (689) | (168) | (505) | (673) |
| Other expenses | 6 | (191) | - | (191) | (190) | - | (190) |
| Return/(loss) on ordinary activities before tax | 571 | (318) | 253 | 494 | 83 | 577 | |
| Tax (charge)/credit on ordinary activities | 8 | (134) | 134 | - | (121) | 121 | - |
| Return/(loss) attributable to shareholders | 437 | (184) | 253 | 373 | 204 | 577 | |
| Basic and diluted return/(loss) per share (pence)* | 10 | 1.40 | (0.60) | 0.80 | 1.20 | 0.70 | 1.90 |
* excluding treasury shares
The accompanying notes form an integral part of these Financial Statements.
The total column of this Income statement represents the profit and loss account of the Company. The supplementary revenue and capital columns have been prepared in accordance with The Association of Investment Companies' Statement of Recommended Practice.
All revenue and capital items in the above statement derive from continuing operations.
There are no recognised gains or losses other than the results for the year disclosed above. Accordingly a statement of total recognised gains and losses is not required.
The difference between the reported return/(loss) on ordinary activities before tax and the historical profit/(loss) is due to the fair value movements on investments. As a result a note on historical cost profit and losses has not been prepared.
Balance sheet
| Note | 31 March 2012 £'000 | 31 March 2011 £'000 | |
| Fixed asset investments | 11 | 20,683 | 18,164 |
| Current assets | |||
| Trade and other debtors | 13 | 213 | 144 |
| Current asset investments | 13 | 1,632 | 4,007 |
| Cash at bank | 17 | 5,673 | 5,502 |
| 7,518 | 9,653 | ||
| Creditors: amounts falling due within one year | 14 | (238) | (284) |
| Net current assets | 7,280 | 9,369 | |
| Net assets | 27,963 | 27,533 | |
| Capital and reserves | |||
| Called up share capital | 15 | 16,703 | 15,937 |
| Share premium | 1,065 | 535 | |
| Unrealised capital reserve | (776) | (518) | |
| Special reserve | 11,015 | 11,987 | |
| Treasury shares reserve | (359) | (207) | |
| Realised capital reserve | (795) | (874) | |
| Revenue reserve | 1,110 | 673 | |
| Total equity shareholders' funds | 27,963 | 27,533 | |
| Basic and diluted net asset value per share (pence) * | 16 | 84.90 | 87.10 |
* excluding treasury shares
The accompanying notes form an integral part of these Financial Statements.
These Financial Statements were approved by the Board of Directors, and were authorised for issue on 3 July 2012 and were signed on its behalf by
Maxwell Packe
Chairman
Company number: 05990732
Reconciliation of movements in shareholders' funds
| Called-up share capital £'000 | Share premium £'000 | Unrealised capital reserve * £'000 | Special reserve* £'000 | Treasury shares reserve* £'000 | Realised capital reserve* £'000 | Revenue reserve* £'000 | Total £'000 | |
| As at 1 April 2011 | 15,937 | 535 | (518) | 11,987 | (207) | (874) | 673 | 27,533 |
| Issue of share capital | 766 | 530 | - | - | - | - | - | 1,296 |
| Capitalised investment management fees | - | - | - | - | - | (517) | - | (517) |
| Tax relief on costs charged to capital | - | - | - | - | - | 134 | - | 134 |
| Purchase of own treasury shares | - | - | - | - | (152) | - | - | (152) |
| Net realised gains on investments | - | - | - | - | - | 12 | - | 12 |
| Unrealised gains on fixed and current asset investments | - | - | 187 | - | - | - | - | 187 |
| Transfer of previously unrealised losses on sale of investments | - | - | (445) | - | - | 445 | - | - |
| Revenue return attributable to shareholders | - | - | - | - | - | - | 437 | 437 |
| Dividends paid | - | - | - | - | - | - | (967) | (967) |
| Transfer from special reserve | - | - | - | (972) | - | 5 | 967 | - |
| As at 31 March 2012 | 16,703 | 1,065 | (776) | 11,015 | (359) | (795) | 1,110 | 27,963 |
| Called-up share capital £'000 | Share premium £'000 | Unrealised capital reserve * £'000 | Special reserve* £'000 | Treasury shares reserve* £'000 | Realised capital reserve* £'000 | Revenue reserve* £'000 | Total £'000 | |
| As at 1 April 2010 | 15,189 | - | (797) | 13,473 | (39) | (1,368) | 300 | 26,758 |
| Issue of share capital | 748 | 535 | - | - | - | - | - | 1,283 |
| Capitalised investment management fees | - | - | - | - | - | (505) | - | (505) |
| Tax relief on costs charged to capital | - | - | - | - | - | 121 | - | 121 |
| Purchase of own treasury shares | - | - | - | - | (168) | - | - | (168) |
| Net realised gains on investments | - | - | - | - | - | 91 | - | 91 |
| Unrealised gains on fixed and current asset investments | - | - | 497 | - | - | - | - | 497 |
| Transfer of previously unrealised losses on sale of investments | - | - | (218) | - | - | 218 | - | - |
| Revenue return attributable to shareholders | - | - | - | - | - | - | 373 | 373 |
| Dividends paid | - | - | - | - | - | - | (917) | (917) |
| Transfer from special reserve | - | - | - | (1,486) | - | 569 | 917 | - |
| As at 31 March 2011 | 15,937 | 535 | (518) | 11,987 | (207) | (874) | 673 | 27,533 |
* Included within the aggregate of these reserves is an amount of £10,195,000 (2011: £11,061,000) which is considered distributable. The special reserve has been treated as distributable in determining the amounts available for distribution.
The special reserve allows the Company, amongst other things, to facilitate the payment of dividends earlier than would otherwise have been possible as transfers can be made from this reserve to the realised capital reserve to offset gross losses on disposal of investments. Accordingly, a transfer of £5,000 representing gross realised losses on disposal of investments during the year to 31 March 2012 has been made from the special reserve to the realised capital reserve.
In addition, a transfer of £967,000 representing the dividend payment made from revenue reserve has been made from the special reserve to the revenue reserve.
Cash flow statement
| Note | Year ended 31 March 2012 £'000 | Year ended 31 March 2011 £'000 | |
| Operating activities | |||
| Investment income received | 767 | 767 | |
| Deposit interest received | 134 | 150 | |
| Investment management fees paid | (519) | (670) | |
| Other cash payments | (176) | (170) | |
| Net cash flow from operating activities | 18 | 206 | 77 |
| Taxation | |||
| UK corporation tax | - | 6 | |
| Capital expenditure and financial investments | |||
| Purchase of fixed asset investments | (3,673) | (8,737) | |
| Disposal of fixed asset investments | 940 | 3,161 | |
| Net cash flow from investing activities | (2,733) | (5,576) | |
| Management of liquid resources | |||
| Purchase of current asset investments | (1,000) | (4,509) | |
| Disposal of current asset investments | 3,500 | 3,054 | |
| Net cash flow from management of liquid resources | 2,500 | (1,455) | |
| Equity dividends paid (net of cost of shares issued under the Dividend Reinvestment Scheme) | (893) | (861) | |
| Net cash flow before financing | (920) | (7,809) | |
| Financing | |||
| Issue of ordinary share capital (including issue costs) | 1,247 | 1,194 | |
| Purchase of own shares (including costs) | (156) | (164) | |
| Net cash flow from financing | 1,091 | 1,030 | |
| Cash flow in the year | 17 | 171 | (6,779) |
Notes to the Financial Statements
1. Accounting convention
The Financial Statements have been prepared in accordance with the historical cost convention, modified to include the revaluation of investments, in accordance with applicable United Kingdom law and accounting standards and with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" ('AIC SORP') issued by The Association of Investment Companies ('AIC') in January 2009. Accounting policies have been applied consistently in current and prior periods.
2. Accounting policies
Investments
Unquoted equity investments, debt issued at a discount, and convertible bonds
In accordance with FRS 26 "Financial Instruments Recognition and Measurement", unquoted equity, debt issued at a discount and convertible bonds are designated as fair value through profit or loss ("FVTPL"). Unquoted investments' fair value is determined by the Directors in accordance with the September 2009 International Private Equity and Venture Capital Valuation Guidelines (IPEVCV guidelines).
Desk top reviews are carried out by independent RICS qualified surveyors by updating previously prepared full valuations for current trading and market indices. Full valuations are prepared by similarly qualified surveyors but in full compliance with the RICS Red Book.
Fair value movements on equity investments and gains and losses arising on the disposal of investments are reflected in the capital column of the Income statement in accordance with the AIC SORP and realised gains or losses on the sale of investments will be reflected in the realised capital reserve, and unrealised gains or losses arising from the revaluation of investments will be reflected in the unrealised capital reserve.
Warrants and unquoted equity derived instruments
Warrants and unquoted equity derived instruments are only valued if there is additional value to the Company in exercising or converting as at the balance sheet date. Otherwise these instruments are held at nil value. The valuation techniques used are those used for the underlying equity investment.
Unquoted loan stock
Unquoted loan stocks (excluding debt issued at a discount and convertible bonds) are classified as loans and receivables as permitted by FRS 26 and measured at amortised cost using the effective interest rate method less impairment. Movements in amortised cost relating to interest income are reflected in the revenue column of the Income statement, and hence are reflected in the revenue reserve, and movements in respect of capital provisions are reflected in the capital column of the Income statement and are reflected in the realised capital reserve following sale, or in the unrealised capital reserve on impairments arising from revaluations of the fair value of the security.
For all unquoted loan stock, whether fully performing, renegotiated, past due or impaired, the Board considers that fair value is equal to or greater than the security value of these assets. For unquoted loan stock, the amount of the impairment is the difference between the asset's cost and the present value of estimated future cash flows, discounted at the original effective interest rate. The future cash flows are estimated based on the fair value of the security less the estimated selling costs.
Current asset investments
In accordance with FRS 26, bonds and floating rate notes are designated as fair value through profit or loss and valued at market bid price at the balance sheet date. Floating rate notes are classified as current asset investments as they are investments held for the short term.
Contractual future contingent receipts on the disposal of fixed asset investments are designated at fair value through profit and loss and are subsequently measured at fair value.
Investments are recognised as financial assets on legal completion of the investment contract and are de-recognised on legal completion of the sale of an investment.
Dividend income is not recognised as part of the fair value movement of an investment, but is recognised separately as investment income through the revenue reserve when a share becomes ex-dividend.
Loan stock accrued interest is recognised in the Balance sheet as part of the carrying value of the loans and receivables at the end of each reporting period.
In accordance with the exemptions under FRS 9 "Associates and joint ventures", those undertakings in which the Company holds more than 20 per cent. of the equity as part of an investment portfolio are not accounted for using the equity method.
Investment income
Unquoted equity income
Dividend income is included in revenue when the investment is quoted ex-dividend.
Unquoted loan stock and other preferred income
Fixed returns on non-equity shares and debt securities are recognised on a time apportionment basis using the effective interest rate over the life of the financial instrument. Income which is not capable of being received within a reasonable period of time is reflected in the capital value of the investment.
Bank interest income
Interest income is recognised on an accrual basis using the rate of interest agreed with the bank.
Floating rate note income
Floating rate note income is recognised on an accrual basis using the interest rate applicable to the floating rate note at that time.
Investment management fees and other expenses
All expenses have been accounted for on an accruals basis. Expenses are charged through the revenue account except the following which are charged through the realised capital reserve:
- 75 per cent. of management fees are allocated to the capital account to the extent that these relate to an enhancement in the value of the investments. This is in line with the Board's expectation that over the long term 75 per cent. of the Company's investment returns will be in the form of capital gains; and
- expenses which are incidental to the purchase or disposal of an investment are charged through the realised capital reserve.
Performance incentive fee
In the event that a performance incentive fee crystallises, the fee will be allocated between revenue and Realised capital reserves based upon the proportion to which the calculation of the fee is attributable to revenue and capital returns.
Taxation
Taxation is applied on a current basis in accordance with FRS 16 "Current tax". Taxation associated with capital expenses is applied in accordance with the SORP. In accordance with FRS 19 "Deferred tax", deferred taxation is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the Financial Statements. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered.
The Directors have considered the requirements of FRS 19 and do not believe that any provision should be made for deferred tax.
Reserves
Share premium account
This reserve accounts for the difference between the price paid for shares and the nominal value of the shares, less issue costs and transfers to the special reserve.
Unrealised capital reserves
Increases and decreases in the valuation of investments held at the year end against cost are included in this reserve.
Special reserve
The cancellation of the share premium account has created a special reserve that can be used to fund market purchases and subsequent cancellation of own shares, to cover gross realised losses, and for other distributable purposes.
Treasury shares reserve
This reserve accounts for amounts by which the distributable reserves of the Company are diminished through the repurchase of the Company's own shares for treasury.
Realised capital reserve
The following are disclosed in this reserve:
- gains and losses compared to cost on the realisation of investments;
- expenses, together with the related taxation effect, charged in accordance with the above policies; and
- dividends paid to equity holders.
Dividends
In accordance with FRS 21 "Events after the balance sheet date", dividends declared by the Company are accounted for in the period in which the dividend has been paid or approved by shareholders in an annual general meeting.
3. Gains on investments
| Year ended 31 March 2012 £'000 | Year ended 31 March 2011 £'000 | |
| Unrealised gains on fixed asset investments held at fair value through profit or loss account | 79 | 405 |
| Unrealised reversals of impairments on fixed asset investments held at amortised cost | 108 | 121 |
| Unrealised gains on fixed asset investments | 187 | 526 |
| Unrealised (losses) on current asset investments held at fair value through profit or loss account | - | (29) |
| Unrealised gains sub-total | 187 | 497 |
| Realised (losses)/gains on fixed asset investments held at fair value through profit or loss account | (18) | 43 |
| Realised gains on fixed asset investments held at amortised cost | 37 | - |
| Realised (losses)/gains on current asset investments held at fair value through profit or loss account | (7) | 48 |
| Realised gains sub-total | 12 | 91 |
| 199 | 588 |
Investments measured at amortised cost are unquoted loan stock investments as described in note 2.
4. Investment income
| Year ended 31 March 2012 £'000 | Year ended 31 March 2011 £'000 | |
| Income recognised on investments held at fair value through profit or loss | ||
| Floating rate note and bond interest | 20 | 70 |
| Interest on convertible bonds and debt issued at a discount | 227 | - |
| 247 | 70 | |
| Income recognised on investments held at amortised cost | ||
| Return on loan stock investments | 552 | 618 |
| Bank deposit interest | 135 | 164 |
| 687 | 782 | |
| 934 | 852 |
Interest income earned on impaired investments at 31 March 2012 amounted to £49,000 (2011:£6,000). These investments are all held at amortised cost.
All of the Company's income is derived from operations in the United Kingdom.
5. Investment management fees
| Year ended 31 March 2012 £'000 | Year ended 31 March 2011 £'000 | |
| Investment management fee charged to revenue | 172 | 168 |
| Investment management fee charged to capital | 517 | 505 |
| 689 | 673 |
Further details of the Management agreement under which the investment management fee is paid are given in the Directors' report on page 20 in the full Annual Report and Financial Statements.
6. Other expenses
| Year ended 31 March 2012 £'000 | Year ended 31 March 2011 £'000 | |
| Directors' fees and associated costs (inclusive of NIC and VAT) | 86 | 82 |
| Auditor's remuneration for statutory audit services (exclusive of VAT) | 23 | 22 |
| Other administrative expenses | 82 | 86 |
| 191 | 190 |
7. Directors' fees and associated costs
The amounts paid to Directors during the year are as follows:
| Year ended 31 March 2012 £'000 | Year ended 31 March 2011 £'000 | |
| Directors' fees | 74 | 74 |
| National insurance and/or VAT | 10 | 7 |
| Expenses | 2 | 1 |
| 86 | 82 |
Expenses charged related to travel expenses in furtherance of their duties as Directors. Further information regarding Directors' remuneration can be found in the Directors' remuneration report on page 29 in the full Annual Report and Financial Statements.
8. Tax (charge)/credit on ordinary activities
| Year ended 31 March 2012 | Year ended 31 March 2011 | |||||
| Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | |
| UK corporation tax in respect of the current year | (134) | 134 | - | (123) | 121 | (2) |
| UK corporation tax in respect of the prior year | - | - | - | 2 | - | 2 |
| (134) | 134 | - | (121) | 121 | - | |
| Year ended 31 March 2012 £'000 | Year ended 31 March 2011 £'000 | |
| Return on ordinary activities before tax | 253 | 577 |
| Tax charge on profit at the small companies rate | (51) | (121) |
| Factors affecting the charge: | ||
| Capital profits not subject to tax | 40 | 123 |
| Utilisation of losses | 11 | - |
| Losses in respect of prior year | - | (2) |
| Current tax charge | - | - |
The tax charge for the year shown in the Income statement is lower than the small companies rate of corporation tax in the UK of 20 per cent. (2011: 21 per cent.). The differences are explained above.
The Company has excess trading losses of £74,000 (2011: £128,000) that are available for offset against future profits. A deferred tax asset of £15,000 (2011: £26,000) has not been recognised in respect of those losses as they will be recoverable only to the extent that the Company has sufficient future taxable profits.
Consortium relief is recognised in the accounts in the period in which the claim is submitted to HMRC and is shown as tax in respect of prior year.
Notes
(i) Venture Capital Trusts are not subject to corporation tax on capital gains.
(ii) Tax relief on expenses charged to capital has been determined by allocating tax relief to expenses by reference to the applicable corporation tax rate and allocating the relief between revenue and capital in accordance with the SORP.
(iii) No deferred tax asset or liability has arisen in the year.
9. Dividends
| Year ended 31 March 2012 £'000 | Year ended 31 March 2011 £'000 | |
| Dividend of 1.5p per share paid on 7 August 2010 | - | 481 |
| Dividend of 1.5p per share paid on 28 February 2011 | - | 436 |
| Dividend of 1.5p per share paid on 31 August 2011 | 480 | - |
| Dividend of 1.5p per share paid on 29 February 2012 | 487 | - |
| 967 | 917 |
In addition to the dividends summarised above, the Board has declared a first dividend for the year ending 31 March 2013 of 1.75 pence per Ordinary share. This dividend will be paid on 31 August 2012 to shareholders on the register as at 3 August 2012. The total dividend will be approximately £591,000.
10. Basic and diluted return per share
| Year ended 31 March 2012 | Year ended 31 March 2011 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| The return per share has been based on the following figures: | ||||||
| Return/(loss) attributable to equity shares (£'000) | 437 | (184) | 253 | 373 | 204 | 577 |
| Weighted average shares in issue (excluding treasury shares) | 32,144,835 | 30,462,927 | ||||
| Return/(loss) attributable per equity share (pence) | 1.40 | (0.60) | 0.80 | 1.20 | 0.70 | 1.90 |
There are no convertible instruments, derivatives or contingent share agreements in issue for Albion Enterprise VCT PLC, and therefore no dilution affecting the return per share. The basic return per share is therefore the same as the diluted return per share.
The weighted average number of shares is calculated excluding treasury shares of 473,010 (2011: 274,010).
The Company's policy is to sell treasury shares at a price greater than the purchase price hence the net asset value per share on the diluted basis would be equal to or greater than the basic net asset value per share, depending on the actual price achieved for selling the treasury shares.
11. Fixed asset investments
| 31 March 2012 £'000 | 31 March 2011 £'000 | |
| Investments held at fair value through profit or loss Qualifying unquoted equity investments | 6,275 | 6,349 |
| Qualifying unquoted debt issued at a discount and convertible bonds | 6,023 | 5,014 |
| 12,298 | 11,363 | |
| Investments held at amortised cost | ||
| Qualifying unquoted loan stock investments | 8,385 | 6,761 |
| Non-qualifying loan stock investments | - | 40 |
| 8,385 | 6,801 | |
| 20,683 | 18,164 |
| 31 March 2012 £'000 | 31 March 2011 £'000 | |
| Opening valuation | 18,164 | 11,908 |
| Purchases at cost | 3,459 | 8,927 |
| Disposal proceeds | (1,053) | (3,161) |
| Realised gains | 19 | 43 |
| Movement in loan stock revenue accrued income | 39 | (79) |
| Transfer of unrealised gains to current asset investments | (132) | - |
| Unrealised gains | 187 | 526 |
| Closing valuation | 20,683 | 18,164 |
| Movement in loan stock revenue accrued income | ||
| Opening accumulated movement in loan stock revenue accrued income | 57 | 136 |
| Movement in loan stock revenue accrued income | 39 | (79) |
| Closing accumulated movement in loan stock revenue accrued income | 96 | 57 |
| Movement in unrealised losses | ||
| Opening accumulated unrealised losses | (525) | (833) |
| Movement in unrealised gains | 187 | 526 |
| Transfer of unrealised gains to current asset investments | (132) | - |
| Transfer of previously unrealised gains to realised reserve on disposal of investments | (439) | (218) |
| Closing accumulated unrealised losses | (909) | (525) |
| Historic cost basis | ||
| Opening book cost | 18,632 | 12,605 |
| Purchases at cost | 3,459 | 8,927 |
| Sales at cost | (595) | (2,900) |
| Closing book cost | 21,496 | 18,632 |
Transfer of unrealised gains to current asset investments represents the fair value of contingent future receipts on disposal of fixed asset investments recognised as current asset investments (see note 13).
The amounts shown for the purchase and disposal of fixed assets included in the cash flow statement differ from the amounts shown above, due to deferred consideration shown as a debtor, and investment settlement debtors and creditors.
The Directors believe that the carrying value of loan stock measured at amortised cost is not materially different to fair value. The Company does not hold any assets as the result of the enforcement of security during the period, and believes that the carrying values for both impaired and past due assets are covered by the value of security held for these loan stock investments.
The amended FRS 29 'Financial Instruments: Disclosures' requires the Company to disclose the inputs to the valuation methods applied to its investments measured at fair value through profit or loss in a fair value hierarchy according to the following definitions:
| Fair value hierarchy | Definition of valuation method |
| Level 1 | Unadjusted quoted (bid) prices applied |
| Level 2 | Inputs to valuation are from observable sources and are directly or indirectly derived from prices |
| Level 3 | Inputs to valuations not based on observable market data |
All of the Company's fixed asset investments as at 31 March 2012 which are valued at fair value though profit or loss, are valued according to Level 3 methods (2011: Level 3).
Investments held at fair value through profit or loss (level 3) had the following movements in the year to 31 March 2012:
| 31 March 2012 | 31 March 2011 | |||||
| Equity | Discounted debt and convertible loan stock | Total | Equity | Discounted debt and convertible loan stock | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Opening balance | 6,349 | 5,014 | 11,363 | 5.526 | - | 5,526 |
| Purchases at cost | 884 | 1,000 | 1,884 | 3,096 | 3,023 | 6,119 |
| Disposal proceeds | (866) | (30) | (896) | (1,285) | - | (1,285) |
| Realised (loss)/gain | (18) | - | (18) | 44 | - | 44 |
| Re-presentation of loan stock | - | - | - | - | 554 | 554 |
| Movement in loan stock revenue accrued income | - | 18 | 18 | - | - | - |
| Transfer of unrealised gains to current asset investments | (132) | - | (132) | - | - | - |
| Unrealised gain/(loss) | 58 | 21 | 79 | (1,032) | 1,437 | 405 |
| Closing balance | 6,275 | 6,023 | 12,298 | 6,349 | 5,014 | 11,363 |
The prior year analysis has been re-presented to reflect loan stock of £686,000, which had been presented within the fair value category in the prior year, but which was designated as a loan and receivable on initial recognition. There is no change in the underlying valuation technique and there is no impact on the net asset value or return for the year.
Investments held at fair value are valued in accordance with the IPEVCV guidelines as follows:
| 31 March 2012 | 31 March 2011 | |
| Valuation methodology | £'000 | £'000 |
| Cost reviewed for impairment | 5,963 | 5,499 |
| Revenue multiple | 2,479 | 2,995 |
| Earnings multiple | 2,188 | 317 |
| Net asset value supported by third party or desktop valuation | 1,385 | 547 |
| Offered acquisition price | - | 883 |
| Price of recent investment | 283 | 1,122 |
| 12,298 | 11,363 |
The portfolio investments had the following movements between valuation methodologies between 31 March 2011 and 31 March 2012:
| Change in valuationmethodology (2011 to 2012) | Value as at 31 March 2012 £'000 | Explanatory note |
| Cost reviewed for impairment to net asset value supported by third party or desktop valuation | 2,216 | Independent valuation carried out |
| Price of recent investment to earnings multiple | 1,179 | More recent information available |
The valuation method used will be the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the September 2009 IPEVCV Guidelines. The Directors believe that, within these parameters, there are no other possible methods of valuation which would be reasonable as at 31 March 2012.
FRS 29 requires the Directors to consider the impact of changing one or more of the inputs used as part of the valuation process to reasonable possible alternative assumptions. The valuation methodology applied to 62 per cent. of the equity, discounted debt and convertible bond investments (by valuation) is based on third-party independent evidence and recent investment price or new investments supported by cash. The Directors believe that changes to reasonable possible alternative input assumptions for the valuation of the remainder of the portfolio could result in an increase in the valuation of investments by £509,000 or a decrease in the valuation of investments by £494,000.
12. Significant interests
The principal activity of the Company is to select and hold a portfolio of investments in unquoted securities. Although the Company, through the Manager, will, in some cases, be represented on the board of the portfolio company, it will not take a controlling interest or become involved in the management of a portfolio company.
The size and structure of the companies with unquoted securities may result in certain holdings in the portfolio representing a participating interest without there being any partnership, joint venture or management consortium agreement. The Company has interests of greater than 20 per cent. of the nominal value of any class of the allotted shares in the portfolio company as at 31 March 2012 as described below:
| Company | Country of incorporation | Principal activity | % class and share type | % total voting rights |
| Greenenerco Limited | Great Britain | Environmental | 28.6% A Ordinary | 50.0% |
The above investment is held as part of an investment portfolio, therefore, as permitted by FRS 9, it is measured at fair value and not accounted for using the equity method.
13. Current assets
| Trade and other debtors | 31 March 2012 | 31 March 2011 |
| £'000 | £'000 | |
| Prepayments and accrued income | 32 | 42 |
| UK corporation taxable receivable | 80 | 80 |
| Other debtors | 101 | 22 |
| 213 | 144 |
The Directors consider that the carrying amount of debtors is not materially different to their fair value.
| 31 March 2012 | 31 March 2011 | |
| Current asset investments | £'000 | £'000 |
| UBS AG floating rate note 20 May 2011 | - | 2,507 |
| Contingent future receipts from the disposal of fixed asset investments | 132 | - |
| Close Brothers Bank Limited fixed term deposit 7 December 2012 | 1,500 | 1,500 |
| 1,632 | 4,007 |
The fair value hierarchy applied to contingent future receipts on disposal of fixed asset investments is Level 3.
The only movements in current asset investments during the year were the redemption of the floating rate note, the recognition of a contingent future receipt on the disposal of a fixed asset investment, the purchase and sale of a bond.
14. Creditors: amounts falling due within one year
| 31 March 2012 | 31 March 2011 | |
| £'000 | £'000 | |
| Trade creditors | 9 | 7 |
| Accruals and deferred income | 229 | 44 |
| Other creditors | - | 233 |
| 238 | 284 |
The Directors consider that the carrying amount of creditors is not materially different to their fair value.
15. Called up share capital
| 31 March 2012 £'000 | 31 March 2011 £'000 | |
| Allotted, called up and full paid 33,405,846 Ordinary shares of 50p each (2011: 31,873,247) | 16,703 | 15,937 |
Voting rights
32,932,836 shares of 50p each (net of treasury shares) (2011: 31,599,237).
The Company purchased 199,000 shares (2011: 219,043) to be held in treasury at a cost of £152,000 (2011: £164,000) representing 0.6 per cent. of the shares in issue (excluding treasury shares) as at 3 July 2012
The Company holds a total of 473,010 shares (2011: 274,010) in treasury representing 1.4 per cent. (2011: 0.9 per cent.) of the shares in issue as at 31 March 2012.
Under the terms of the Dividend Reinvestment Scheme Circular dated 26 November 2009, the following Ordinary shares, with a nominal value 50 pence per share, were allotted in the year to 31 March 2012:
| Date of allotment | Number of shares allotted | Aggregate nominal value of shares (£'000) | Issue price including issue cost (pence per share) | Net Consideration received (£'000) | Opening market price per share on allotment date (pence per share) |
| 31 August 2011 | 42,409 | 21 | 86.04 | 35 | 75.75 |
| 29 February 2012 | 45,001 | 23 | 82.94 | 35 | 73.75 |
| 87,410 | 44 | 70 |
During the year the following Ordinary shares with a nominal value of 50 pence per share were allotted under the terms of the Albion VCTs Linked Top Up Offers launched in November 2010 and in November 2011.
| Date of allotment | Number of shares allotted | Aggregate nominal value of shares (£'000) | Issue price Including Issue cost (pence per share) | Net Consideration received (£'000) | Opening market price per share on allotment date (pence per share) |
| 5 April 2011 | 470,928 | 234 | 90.67 | 405 | 77.25 |
| 16 May 2011 | 39,309 | 20 | 92.30 | 34 | 77.25 |
| 10 January 2012 | 441,554 | 221 | 90.40 | 378 | 74.75 |
| 20 March 2012 | 493,398 | 247 | 87.80 | 409 | 73.75 |
| 1,445,189 | 722 | 1,226 |
16. Basic and diluted net asset value per share
| 31 March 2012 | 31 March 2011 | |
| (pence per share) | (pence per share) | |
| Basic and diluted net asset value per share | 84.90 | 87.10 |
The basic and diluted net asset values per share at the year end are calculated in accordance with the Articles of Association and are based upon total shares in issue (less treasury shares) of 32,932,836 Ordinary shares (2011: 31,599,237) at 31 March 2012.
17. Analysis of changes in cash during the year
| 31 March 2012 £'000 | 31 March 2011 £'000 | |
| Opening cash balances | 5,502 | 12,281 |
| Net cash flow | 171 | (6,779) |
| Closing cash balances | 5,673 | 5,502 |
18. Reconciliation of net return on ordinary activities before taxation to net cash flow from operating activities
| Year ended 31 March 2012 £'000 | Year ended 31 March 2011 £'000 | |
| Revenue return on ordinary activities before taxation | 571 | 494 |
| Investment management fee charged to capital | (517) | (505) |
| Movement in accrued amortised loan stock interest | (39) | 79 |
| Decrease/(increase) in debtors | 9 | (16) |
| Increase in creditors | 182 | 25 |
| Net cash flow from operating activities | 206 | 77 |
19. Capital and financial instruments risk management
The Company's capital comprises Ordinary shares as described in note 15. The Company is permitted to buy-back its own shares for cancellation or treasury purposes, and this is described in more detail on page 21 of the Directors' report in the full Annual Report and Financial Statements..
During the year the Company issued shares under the Albion VCTs Linked Top Up Offers 2010/2011 and 2011/2012. The 2011/2012 Offer closed on 31 May 2012.
The Company's financial instruments comprise equity and loan stock investments in unquoted companies, floating rate notes and bonds, long term cash deposits, cash balances, short term debtors and creditors which arise from its operations. The main purpose of these financial instruments is to generate cash flow and revenue and capital appreciation for the Company's operations. The Company has no gearing or other financial liabilities apart from short term creditors. The Company does not use any derivatives for the management of its balance sheet.
The principal risks arising from the Company's operations are:
- Investment (or market) risk (which comprises investment price and cash flow interest rate risk);
- credit risk; and
- liquidity risk.
The Board regularly reviews and agrees policies for managing each of these risks. There have been no changes in the nature of the risks that the Company has faced during the past year, and apart from where noted below, there have been no changes in the objectives, policies or processes for managing risks during the past year. The key risks are summarised below.
Investment risk
As a venture capital trust, it is the Company's specific nature to evaluate and control the investment risk of its portfolio in unquoted and in quoted investments, details of which are shown on pages 11 and 12 in the full Annual Report and Financial Statements. Investment risk is the exposure of the Company to the revaluation and devaluation of investments. The main driver of investment risk is the operational and financial performance of the portfolio companies and the dynamics of market quoted comparators. The Manager receives management accounts from portfolio companies, and members of the investment management team often sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment risk.
The Manager and the Board formally reviews investment risk (which includes market price risk), both at the time of initial investment and at quarterly Board meetings.
The Board monitors the prices at which sales of investments are made to ensure that profits to the Company are maximised, and that valuations of investments retained within the portfolio appear sufficiently prudent and realistic compared to prices being achieved in the market for sales of unquoted investments.
The maximum investment risk as at the balance sheet date is the value of the fixed and current asset investment portfolio which is £22,315,000 (2011: £22,171,000). Fixed and current asset investments form 80 per cent. of the net asset value as at 31 March 2012 (2011: 81 per cent.).
More details regarding the classification of fixed and current asset investments are shown in notes 11 and 13.
Investment price risk
Investment price risk is the risk that the fair value of future investment cash flows will fluctuate due to factors specific to an investment instrument or to a market in similar instruments. To mitigate the investment price risk for the Company as a whole, the strategy of the Company is to invest in a broad spread of industries with approximately 65 per cent. of the unquoted investments comprising debt securities, which, owing to the structure of their yield and the fact that they are usually secured, have a lower level of price volatility than equity. Details of the industries in which investments have been made are contained in the Portfolio of investments section on pages 11 and 12 in the full Annual Report and Financial Statements and in the Manager's report.
Valuations are based on the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEVCV Guidelines.
As required under FRS 29 'Financial Instruments: Disclosures', the Board is required to illustrate by way of a sensitivity analysis, the degree of exposure to market risk. The Board considers that the value of the fixed and current asset investment portfolio is sensitive to a 10 per cent. change based on the current economic climate. The impact of a 10 per cent. change has been selected as this is considered reasonable given the current level of volatility observed both on a historical basis and future expectations.
The sensitivity of a 10 per cent. increase or decrease in the valuation of the fixed and current asset investments (keeping all other variables constant) would increase or decrease the net asset value and return for the year by £2,232,000 (2011: £2,217,000).
Cash flow interest rate risk
It is the Company's policy to accept a degree of interest rate risk on its financial assets through the effect of interest rate changes. On the basis of the Company's analysis, it is estimated that a rise of 1.0 percent. in all interest rates would have increased total return before tax for the year by approximately £275,000 (2011: £138,000). Furthermore, it is considered that a fall of interest rates below current levels during the year would have been very unlikely.
The weighted average interest rate applied to the Company's fixed rate assets during the year was approximately 5.9 per cent. (2011: 5.2 per cent.). The weighted average period to expected maturity for the fixed rate assets is approximately 6.1 years (2011: 3.7 years).
The Company's financial assets and liabilities as at 31 March 2012, all denominated in pounds sterling, consist of the following:
| 31 March 2012 | 31 March 2011 | |||||||
| Fixed rate £'000 | Floating rate £'000 | Non- interest bearing £'000 | Total £'000 | Fixed rate £'000 | Floating rate £'000 | Non- interest bearing £'000 | Total £'000 | |
| Unquoted equity | - | - | 6,275 | 6,275 | - | - | 6,349 | 6,349 |
| Discounted debt and convertible loan stock | 6,023 | - | - | 6,023 | - | - | - | - |
| Unquoted loan stock | 7,913 | - | 472 | 8,385 | 11,587 | 228 | - | 11,815 |
| Floating rate notes | - | - | - | - | - | 2,507 | - | 2,507 |
| Current asset investments | 1,500 | - | 132 | 1,632 | 1,500 | - | - | 1,500 |
| Debtors* | - | - | 181 | 181 | - | - | 102 | 102 |
| Cash | 5,673 | - | - | 5,673 | 2,644 | 2,858 | - | 5,502 |
| Current liabilities | - | - | (238) | (238) | - | - | (284) | (284) |
| Total net assets | 21,109 | - | 6,822 | 27,931 | 15,731 | 5,593 | 6,167 | 27,491 |
*The debtors do not reconcile to the balance sheet as prepayments and tax payable are not included in the above table.
Credit risk
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Company is exposed to credit risk through its debtors, investment in unquoted loan stock, floating rate notes and through the holding of cash on deposit with banks.
The Manager evaluates credit risk on loan stock and other similar instruments prior to investment, and as part of its ongoing monitoring of investments. In doing this, it takes into account the extent and quality of any security held. Typically loan stock instruments have a first fixed charge or a fixed and floating charge over the assets of the portfolio company in order to mitigate the gross credit risk. The Manager receives management accounts from portfolio companies, and members of the investment management team often sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment-specific credit risk.
The Manager and the Board formally review credit risk (including debtors) and other risks, both at the time of initial investment and at quarterly Board meetings.
The Company's total gross credit risk as at 31 March 2012 was limited to £14,408,000 (2011: £11,815,000) of unquoted loan stock instruments (all of which are secured on the assets of the portfolio company), £5,673,000 (2011: £5,502,000) of cash deposits with banks and £1,500,000 of term deposits (2011: £2,507,000 floating rate notes and £1,500,000 of term deposits).
As at the balance sheet date, the cash held by the Company is held with the Royal Bank of Scotland plc, Bank of Scotland plc, Lloyds TSB Bank plc, Scottish Widows Bank plc (part of Lloyds TSB Bank plc), Standard Life Cash Savings (part of Barclays Bank Plc) and UBS Wealth Management (part of UBS AG). Credit risk on cash transactions is mitigated by transacting with counterparties that are regulated entities subject to regulatory supervision, with Moody's credit ratings of at least 'A' or equivalent as assigned by international credit-rating agencies.
The Company has an informal policy of limiting counterparty banking and floating rate note exposure to a maximum of 20 per cent. of net asset value for any one counterparty.
The credit profile of unquoted loan stock is described under liquidity risk.
The cost, impairment and carrying value of impaired loan stocks held at amortised cost at 31 March 2012 and 31 March 2011 are as follows:
| 31 March 2012 | 31 March 2011 | |||||
| Cost £'000 | Impairment £'000 | Carrying value £'000 | Cost £'000 | Impairment £'000 | Carrying value £'000 | |
| Impaired loan stock | 1,950 | (365) | 1,585 | 795 | (143) | 652 |
Impaired loan stock instruments have a first fixed charge or a fixed and floating charge over the assets of the portfolio company and the Board estimate that the security value approximates to the carrying value.
Liquidity risk
Liquid assets are held as cash on current account, cash on deposit or short term money market account. Under the terms of its Articles, the Company has the ability to borrow up to 10 per cent. of its adjusted share capital and reserves, which amounts to £2,796,000 (2011: £2,753,000) as at 31 March 2012.
The Company has no committed borrowing facilities as at 31 March 2012 (2011: £nil) and had cash balances of £5,673,000 (2011: £5,502,000, together with £2,507,000 invested in floating rate notes), which are considered to be readily realisable within the timescales required to make cash available for investment. The main cash outflows are for new investments, share buy-backs and dividend payments, which are within the control of the Company. The Manager formally reviews the cash requirements of the Company on a monthly basis, and the Board on a quarterly basis as part of its review of management accounts and forecasts. All the Company's financial liabilities are short term in nature and total £238,000 as at 31 March 2012 (2011: £284,000).
The carrying value of loan stock investments held at amortised cost and at fair value through profit or loss at 31 March 2012 as analysed by expected maturity dates is as follows:
| Redemption date | Fully performing loan stock £'000 | Past due loan stock £'000 | Impaired loan stock £'000 | Total £'000 |
| Less than one year | 425 | 204 | 473 | 1,102 |
| 1-2 years | 646 | 672 | 287 | 1,605 |
| 2-3 years | 348 | 661 | 661 | 1,670 |
| 3-5 years | 3,726 | 2,863 | 164 | 6,753 |
| +5 years | - | 3,278 | - | 3,278 |
| 5,145 | 7,678 | 1,585 | 14,408 |
Loan stock can be past due as a result of interest or capital not being paid in accordance with contractual terms.
Loan stock categorised as past due includes:
- Loan stock with a carrying value of £672,000 yielding 6.4 per cent. which has interest past due by 2 months;
- Loan stock with a carrying value of £545,000 yielding 7.3 per cent. which has interest overdue for 2 months;
- Loan stock with a carrying value of £4,941,000 in renewable energy companies who are building up interest yield over periods of up to a year as installation of units are completed. Typically these loan stocks yield in excess of 9 per cent. once installed.
- Loan stocks with a value of £1,520,000 which has interest overdue of less than one year.
The carrying value of loan stock investments held at amortised cost at 31 March 2011 as analysed by expected maturity dates was as follows:
| Redemption date | Fully performing loan stock £'000 | Past due loan stock £'000 | Impaired loan stock £'000 | Total £'000 |
| 1-2 years | 527 | - | 439 | 966 |
| 2-3 years | 1,695 | - | - | 1,695 |
| 3-5 years | 6,428 | 2,513 | 213 | 9,154 |
| 8,650 | 2,513 | 652 | 11,815 |
In view of the factors identified above, the Board considers that the Company is subject to low liquidity risk.
Fair values of financial assets and financial liabilities
All the Company's financial assets and liabilities as at 31 March 2012 are stated at fair value as determined by the Directors, with the exception of loans and receivables included within investments, cash balances, debtors and creditors, which are carried at amortised cost, in accordance with FRS 26. The Directors believe that the current carrying value of loan stock is not materially different to the fair value. There are no financial liabilities other than creditors. The Company's financial liabilities are all non-interest bearing. It is the Directors' opinion that the book value of the financial liabilities is not materially different to the fair value and all are payable within one year.
20. Commitments and contingencies
As at 31 March 2012, the Company was committed to making a further investment of £104,000 in Mi-Pay Limited and £41,000 in Nelson House Hospital Limited (2011: £853,000).
There are no contingent liabilities or guarantees given by the Company as at 31 March 2012 (31 March 2011: nil).
21. Post balance sheet events
Since 31 March 2012 the Company has had the following post balance sheet events:
- April 2012: Mi-Pay Limited investment of £104,000;
- May 2012: Bravo Inns II Limited investment of £177,500;
- May 2012: Hilson Moran Holdings Limited partial repayment of loan stock of £60,000;
- June 2012: Nelson House Hospital Limited investment of £21,000.
The following Ordinary shares of nominal value 50 pence per share were allotted under the Albion VCTs Linked Top Up Offer 2011/2012 since the year end:
| Date of allotment | Number of shares allotted | Aggregate nominal value of shares (£'000) | Issue price Including Issue cost (pence per share) | Net Consideration received (£'000) | Opening market price per share on allotment date (pence per share) |
| 5 April 2012 | 755,882 | 378 | 87.80 | 627 | 71.50 |
| 31 May 2012 | 84,913 | 42 | 87.80 | 71 | 67.00 |
| 840,795 | 420 | 698 |
The Offer closed 31 May 2012.
22. Related party transactions
The Manager, Albion Ventures LLP, is considered to be a related party by virtue of the fact that Patrick Reeve, a Director of the Company, is also a Managing Partner of the Manager. The Manager is party to a Management agreement from the Company (details disclosed on page 20 of the full Annual Report and Financial Statements).
During the year, services of a total value of £689,000 (2011: £673,000) were purchased by the Company from Albion Ventures LLP. At the financial year end, the amount due to Albion Ventures LLP in respect of these services disclosed as accruals and deferred income was £175,000 (2011: £5,000).
Patrick Reeve is the Managing Partner of the Manager, Albion Ventures LLP. During the year, the Company was charged by Albion Ventures LLP £21,600 including VAT (2011: £21,600) in respect of his services as a Director. At the year end, the amount due to Albion Ventures LLP in respect of these services disclosed as accruals and deferred income was £5,000 (2011: £4,000).
During the year the Company raised new funds through the Albion VCTs Linked Top Up Offers as detailed in note 15. The total cost of the issue of these shares was 5.5 per cent. of the sums subscribed. Of these costs, an amount of £6,740 (2011: £3,450) was paid to the Manager, Albion Ventures LLP in respect of receiving agent services. There were no sums outstanding in respect of receiving agent services at the year end.
There are no other related party transactions or balances requiring disclosure.
23. Principal risks and uncertainties
In addition to the current economic risks outlined in the Chairman's statement, the Board considers that the Company faces the following major risks and uncertainties:
1.Economic risk
Changes in economic conditions, including, for example, interest rates, rates of inflation, industry conditions, competition, political and diplomatic events and other factors could substantially and adversely affect the Company's prospects in a number of ways.
To reduce this risk, in addition to investing equity in portfolio companies, the Company often invests in secured loan stock and has a policy of not normally permitting any external bank borrowings within portfolio companies. Additionally, the Manager has been rebalancing the sector exposure of the portfolio with a view to reducing reliance on consumer led sectors.
2. Investment risk
This is the risk of investment in poor quality assets which reduces the capital and income returns to shareholders, and negatively impacts on the Company's reputation. By nature, smaller unquoted businesses, such as those that qualify for venture capital trust purposes, are more fragile than larger, long established businesses.
To reduce this risk, the Board places reliance upon the skills and expertise of the Manager and their strong track record for investing in this segment of the market. In addition, the Manager operates a formal and structured investment process, which includes an Investment Committee, comprising investment professionals from the Manager and at least one external investment professional. The Manager also invites and takes account of comments from all non-executive Directors of the Company on investments discussed at the Investment Committee meetings. Investments are actively and regularly monitored by the Manager (investment managers normally sit on investee company boards) and the Board receives detailed reports on each investment as part of the Manager's report at quarterly board meetings. It is the policy of the Company for portfolio companies to not normally have external bank borrowings.
3. Valuation risk
The Company's investment valuation method is reliant on the accuracy and completeness of information that is issued by portfolio companies. In particular, the Directors may not be aware of or take into account certain events or circumstances which occur after the information issued by such companies is reported.
As described in note 2 of the Financial Statements, the unquoted equity investments, convertible loan stock and debt issued at a discount held by the Company are designated at fair value through profit or loss and valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. These guidelines set out recommendations, intended to represent current best practice on the valuation of venture capital investments. These investments are valued on the basis of forward looking estimates and judgments about the business itself, its market and the environment in which it operates, together with the state of the mergers and acquisitions market, stock market conditions and other factors. In making these judgments the valuation takes into account all known material facts up to the date of approval of the Financial Statements by the Board. All other unquoted loan stock is measured at amortised cost.
4. Venture Capital Trust approval risk
The Company's current approval as a venture capital trust allows investors to take advantage of tax reliefs on initial investment and ongoing tax free capital gains and dividend income. Failure to meet the qualifying requirements could result in investors losing the tax relief on initial investment and loss of tax relief on any tax free income or capital gains received. In addition, failure to meet the qualifying requirements could result in a loss of listing of the shares.
To reduce this risk, the Board has appointed the Manager, who has a team with significant experience in venture capital trust management, used to operating within the requirements of the venture capital trust legislation. In addition, to provide further formal reassurance, the Board has appointed PricewaterhouseCoopers LLP as its taxation advisor. PricewaterhouseCoopers LLP report quarterly to the Board to independently confirm compliance with the venture capital trust legislation, to highlight areas of risk and to inform on changes in legislation.
5. Compliance risk
The Company is listed on the London Stock Exchange and is required to comply with the rules of the UK Listing Authority, as well as with the Companies Act, Accounting Standards and other legislation. Failure to comply with these regulations could result in a delisting of the Company's shares, or other penalties under the Companies Act or from financial reporting oversight bodies.
Board members and the Manager have experience of operating at senior levels within quoted businesses. In addition, the Board and the Manager receive regular updates on new regulation from its auditor, lawyers and other professional bodies.
6. Internal control risk
Failures in key controls, within the Board or within the Manager's business, could put assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or to shareholders.
The Audit Committee meets with the Manager's internal auditor, Littlejohn LLP, when required, receiving a report regarding the last formal internal audit performed on the Manager, and providing the opportunity for the Audit Committee to ask specific and detailed questions. Lord St John of Bletso, as Audit Committee Chairman, met with the internal audit Partner of Littlejohn LLP in January 2012 to discuss the most recent Internal Audit Report on the Manager. The Manager has a comprehensive business continuity plan in place in the event that operational continuity is threatened. Further details regarding the Board's management and review of the Company's internal controls through the implementation of the Turnbull guidance are detailed on page 26 of the full Annual Report and Financial Statements.
Measures are in place to mitigate information risk in order to ensure the integrity, availability and confidentiality of information used within the business.
7. Reliance upon third parties risk
The Company is reliant upon the services of Albion Ventures LLP for the provision of investment management and administrative functions. There are provisions within the management agreement for the change of Manager under certain circumstances (for more detail, see the management agreement paragraph on page 20 of the full Annual Report and Financial Statements). In addition, the Manager has demonstrated to the Board that there is no undue reliance placed upon any one individual within Albion Ventures LLP.
8. Financial risks
By its nature, as a venture capital trust, the Company is exposed to investment risk (which comprises investment price risk and cash flow interest rate risk), credit risk and liquidity risk. The Company's policies for managing these risks and its financial instruments are outlined in full in note 19.
All of the Company's income and expenditure is denominated in sterling and hence the Company has no foreign currency risk. The Company is financed through equity and does not have any borrowings. The Company does not use derivative financial instruments for speculative purposes.
24. Other information
The information set out in this announcement does not constitute the Company's statutory accounts within the terms of section 434 of the Companies Act 2006 for the years ended 31 March 2012 and 31 March 2011, and is derived from the statutory accounts for those financial years, which have been, or in the case of the accounts for the year ended 31 March 2012, which will be, delivered to the Registrar of Companies. The Auditor reported on those accounts; the reports were unqualified and did not contain a statement under s498 (2) or (3) of the Companies Act 2006.
The Company's Annual General Meeting will be held at The Worshipful Company of Coopers, Coopers Hall, 13 Devonshire Square, London, EC2M 4TH on 4 September 2012 at 12 noon.
25. Publication
The full audited Annual Report and Financial Statements are being sent to shareholders and copies will be made available to the public at the registered office of the Company, Companies House, the National Storage Mechanism and also electronically at www.albion-ventures.co.uk under the 'Our Funds' section, by clicking on 'Albion Enterprise VCT PLC', where the Report can be accessed as a PDF document via a link under the 'Investor Centre' in the 'Financial Reports and Circulars' section.
The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.
Source: Albion Enterprise VCT PLC via Thomson Reuters ONE
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